What does Lifetime Value (LTV) measure?

• A. The average revenue generated per customer over a certain period of time
• B. The total revenue from all customers in a lifetime
• C. The number of purchases per customer
• D. The average cost per acquisition

Answer: (A)

Lifetime Value is the forecast of how much revenue a single customer will generate for the business over the duration of their relationship. It looks ahead to the entire time a customer stays with you, not just a single purchase, and is often expressed in terms of revenue (or gross profit) from that one customer. This concept guides how much you should spend to acquire and keep that customer, because a higher expected value means you can justify more investment in marketing and retention. A typical way to estimate it is by multiplying the average order value by how often they buy and by how long they stay as a customer, adjusted for margins. This differs from the total revenue across all customers over a lifetime, from the number of purchases per customer, or from the cost to acquire a customer.